It’s hard to believe.
Interest rates have fallen back down to where they were last September.
Common sense, logic, and the basic understanding of economic principles argue against it, but it is what it is.
Here’s a look at the most recent 30-year Treasury yield chart…
We can argue that part of the rush into Treasurys has to do with the stock market’s recent collapse. After all, the significant drop in yields coincides exactly with the drop in the stock market.[ad#Google Adsense 336×280-IA]We can also argue that it has something to do with Ben Bernanke promising to keep short-term rates at about 0% until mid-2013.
Yields dropped because investors piled into Treasurys, pushing prices up. (Yields drop when prices rise, and vice versa.)
That news caused a rush into longer-term Treasurys as investors sought to capture any sort of positive yield they could get.
But come on. Really?
If there is one trade this year that has me pounding my head on the table, it’s the short Treasury bond trade. U.S. Treasury bonds were just downgraded from triple-A to double-A-plus.
The budget deal is a mess. And the government keeps spending far more than it takes in. So why on earth are folks willing to loan the U.S. government money for 30 years at the paltry yield of just 3.6%?
Logic is on vacation.
Let’s face it… investors are scared. They’re willing to lock in a guaranteed loss of purchasing power for 30 years in exchange for a guaranteed return of principal. It’s not a bet I would make. In fact, I’d bet against it all day long.
Just as I was bearish on bonds last fall – the last time Treasury yields were this low – I have to be bearish on bonds here. Bond prices are in bubble territory. And just like all bubbles, when it pops, it will be sudden and dramatic.
Of course, it’s hard to time the bursting of a bubble. So you must be patient.
But at a 3.6% yield, being short Treasury bonds is a far better trade right now than being short the stock market.
Best regards and good trading,
— Jeff Clark[ad#jack p.s.]
Source: The Growth Stock Wire